The Schwartz Report

Dell To Become IT 'Powerhouse' with Deal to Acquire EMC

After a week of speculation, Dell Inc. has agreed to acquire EMC Corp. for $67 billion in what would be the largest IT industry deal ever. The deal, pending approval of EMC shareholders and government regulators, is slated to close sometime next year, and will clearly reshape the IT competitive landscape, giving Dell the leading enterprise storage business, a controlling interest in virtualization giant VMware Inc., the Big Data and analytics business of Pivotal, and the data security and encryption provider RSA.

The combined company aims to provide turnkey solutions from PCs and thin clients, to servers, storage, cloud, security and integrated software-defined datacenter solutions. "We're putting ourselves in an incredible position in this combined powerhouse enterprise company," said EMC Chairman and CEO Joe Tucci on a conference call this morning with analysts and media, which was led by Dell founder, Chairman and CEO Michael Dell, VMware CEO Pat Gelsinger and Egon Durban, managing partner at Silver Lake Partners, which is providing $3.5 billion in capital to help finance the deal, which will also be funded by the high-yield bond markets.

Both companies are major forces in the IT industry in their own right, though EMC lacked a server and networking business. Its controlling interest in VMware, which will continue as a publicly traded company, will help Dell extend into the growing segments of mobility management via AirWatch, software-defined datacenter, and next-generation virtualization, which includes public and private cloud, micro-services, and containers.

"From earlier reaction I've had from some of our best and longstanding customers," Dell said, "customers don't want to have to integrate things themselves," pointing to the potential to provide new technology based on the companies' complementary technologies. Dell didn't elaborate to what extent the new company would provide such integrated solutions.

With the huge technology and product portfolio of the combined company, the new Dell would become a formidable competitor to IBM Corp., Oracle Corp., Cisco Systems Inc., Amazon Web Services Inc. and even Microsoft. It also creates questions to what extent Dell will be motivated to see its relationship with Microsoft evolve further, given it will have competitive virtualization, cloud, container and related datacenter infrastructure technology.

On the call, Dell said the company would continue its partnerships with companies such as Microsoft, Cisco and Red Hat Inc., while offering competitive solutions, pointing to the industry's long history of "coopetition," the industry catchphrase for partnering with competitors. "We will be thoughtful about how we do that to make sure we do it in the right way," Dell said. "We do have a history of working together in the past and I think that will accelerate our ability to bring solutions to customers in a faster way."

VMware's Gelsinger pointed to his company's longstanding relationships with Dell rivals Hewlett-Packard Co., Lenovo and others. "Dell has demonstrated their commitment to openness over the decades of the company," Gellsinger said. "That's been a hallmark of them and, likewise, the independent ecosystem of VMware."

Michael Dell also noted the company will continue to support its VCE partnership with Cisco and indicated he'd like to extend EMC's federated business model of maintaining separately run businesses such as Pivotal and RSA. "We've certainly studied this capability and have gotten to know the organization and how the federation works [and] we look forward to enhancing that," Dell said. He offered two examples. "Within Dell we have some fantastic new businesses we've been incubating ourselves. SecureWorks would be one [and] we have another one called Boomi, which is a fast-growing cloud data integration company," Dell said. "I think there are some great aspects to this structure and as we come together as a combined company, I think we will be even more powerful."

Industry analyst Dan Kusnetzky of the Kusnetzky Group pointed to the vast number of areas the two companies would become a larger force in a blog post on our sister site VirtualizationReview.com. "Dell clearly wants to be in a position to knock on any enterprise door and be welcomed in as a major enterprise player," Kusnetzky said.

Indeed, this huge deal comes at a time when the competitive landscape of enterprise technology providers is reshaping, in part due to large changes in the way organizations are procuring and deploying IT infrastructure and services. For its part, activist investor Elliott Management was pushing EMC and VMware to find a way to accelerate growth. HP will separate into two companies next year (HP Enterprise and PC and printer division HP Inc.) and even companies such as Citrix and SolarWinds are under pressure by investors to consider their options.

Under the terms of the agreement, EMC has 60 days to consider a better offer, but given the price Dell and SilverLake have offered and the fact that this deal has quietly been in the works for more than a year, it doesn't appear likely that a better offer will emerge.